Yesterday, the price of gold dropped another $15. If it was a bargain on Wednesday, it was an even bigger bargain on Thursday. Now, it is Friday morning and we are wondering: What kind of a bargain will it be by day's end?

If we knew, we would say so. We do not hold back, dear reader. But if we knew - well, never mind.

The question is this: Is this a bubble or is it a correction in a long-term bull market? We have already given you our answer; here is more in the way of explanation:

As we mentioned yesterday, the Japanese adopted ZIRP (Zero Interest Rate Policy) in the mid-'90s. But the Bubble Era officially began 10 years earlier, at the Plaza Hotel, in New York City. Then, as now, the United States was pounding the table to get one of its chief trading partners to revalue its currency. American industries were losing market share. U.S. financial strategists wanted a cheaper dollar. But then, it was Japan not China, they were trying to bully. And then, it worked.

Japan buckled. It agreed to raise the yen. A higher yen would make it tougher for the Japanese to compete on price alone. Thereafter, they'd have to compete on quality. No one knew it at the time, but the pushy Americans had doomed their own auto-industry, by forcing Japan to produce better cars.

Nor did anyone realize what sort of effect this would have on the Japanese economy. The Japanese themselves feared the worst. They did what all central bankers are taught to do and then, being Japanese, they probably overdid it. While the yen was stiffened up on international currency markets, it was softened up at home to counteract the effect of a more expensive currency. The result was the "Japanese Miracle." Property prices soared. The stock markets went wild.

But it was no miracle. It was a credit-spurred bubble, and not the first, nor the last.

It came to an end in January of 1990. At first, the Japanese did not know what to think. It was temporary, they thought. Just a correction, they said. Don't worry, they told themselves. But when the slump didn't go away, Japanese monetary officials overdid it again. This time they went "be-ZIRP." We described their zero-interest-rate policy yesterday. The traders at Goldman Sachs and other hedge funds recognized the possibilities almost immediately. They were soon bidding up prices on everything from Russian bonds to American dot.coms. Forget about putting up factories or building companies; there seemed to be no end to the money that could be made in speculation.

Thus began a whole series of bubbles all over the world - Russian debt, Asian currencies, U.S. tech stocks, American household credit, housing in almost all the Anglo-Saxon countries, emerging stock markets, Bombay apartments, contemporary art, commodities...and now, maybe even gold.
 
When one blew up, it was on to the next one! Whee! Wall Street and the City never had it so good.

What's more, it looked like it would last forever. While central banks lent money below the inflation rate, the forces of deflation held down consumer prices. Globalization and communication technology were forcing labor rates worldwide down toward the lowest common denominator. And Wal-Martization delivered products at bargain prices to consumers everywhere...buying in huge quantities from the lowest-cost provider and offering them in no-frills shopping Meccas with the lowest-possible mark-up.

And so, the Great Speculation Nation was born. Its beneficiaries did so well with it, one of them was just nominated as U.S. Treasury Secretary.

Over at Slate, Daniel Gross describes Goldman Sachs as a giant and an "extraordinarily profitable hedge fund lashed to a highly profitable investment bank." He goes on to say, "As Goldman's remarkable first-quarter earnings report shows, $6.88 billion of the firm's $10.34 billion in total revenues came from trading and principal investments. "In the 1990s, exposure to the retail sectors of the financial services industry - and to the conflicts of interest and scandals that ran through them - tarnished the images of many large Wall Street banks and their leaders, including Citigroup, Merrill Lynch, and Credit Suisse First Boston. Although Goldman Sachs was a party to the Wall Street research settlement, it emerged from the scandals in better shape than many of its rivals."

Others would disagree. According to Peter Flaherty of the National Legal and Policy Center, Goldman has "an unusually tangled relationship with the Nature Conservancy, a group that is just coming off a string of scandals."

Of course, Goldman has other advantages:

"Former Goldman heads have something else to recommend them to public service: They're insanely wealthy," notes Gross. "According to Goldman's most recent proxy statement, Paulson has a 4.58 million-share stake in the company worth nearly $700 million."

But the $64,000 question - or, to put it in terms Paulson can appreciate, the $64 million question - remains. Will Paulson make a difference?

"Will he do a better job than Snow of telling American workers, who have seen the median income fall, that they've never had it so good?"

He will barely try, is our guess. Liars and apologists are a dime a dozen in high places. Paulson has another, tougher role to play: He is expected to keep Speculation Nation in business.

*** We wondered why falling house prices in Britain have not triggered serious economic trouble. In Britain, as in America, speculation on housing has become a popular folly; debt has become a major problem. The Brits are now on the hook for nearly $2 trillion in mortgage debt. People count on rising real estate prices in order to continue spending at the same rate. So, you'd expect at least a slump if prices went down.

But now, it's been more than a year since housing prices were supposed to have begun falling and still the English economy is doing quite nicely, thank you. Yes, bankruptcies are running at record rates, but otherwise, the economy appears healthy (Or, let us put it this way: if you want to go to a good restaurant, make sure you call ahead for reservations). A conundrum? A puzzle? A curiosity?

Well, it turns out that house prices aren't falling after all. And neither are the prices falling in the United States. Permits are down. Mortgage applications are falling. Inventories are hitting record levels. But according to CBS in the United States, "home prices rise but at a slower rate." We read similar headlines about the English property market.

What does this mean? Only that the theory is still untested. We believe that lower property prices will produce a recession and a bear market on Wall Street. We can hardly wait to find out if we're right.

*** "Are you buying gold at this price?" asked a friend yesterday. "Do you think it will go lower?"

Again, we tried to explain ourselves. We buy gold when we have some money in our pocket and nothing better to do with it. Personally, we have made a number of family-related financial commitments. We're not in a hurry to buy, merely because we have nothing much to buy with.

Beyond that, we can guess along with everyone else. Our guess is that this correction has further to go. Under $600 is our guess. Maybe under $550. But who knows? When it looks as though the correction is over, we will reach into our pockets to see if there is any money available to buy gold.

While we are on the subject of our own investing, we would like to confess that we do not even try to make a profit from our investing. We only try to preserve our capital. Why? Because we have been very lucky in business...lucky in love...lucky in family...lucky in so many ways. Expecting to be lucky in our investments would seem like ingratitude on our part.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.